Navigant Research Blog

The importance of cities to meeting global climate targets is undisputed. Since the COP21 Paris Agreement, more and more cities are joining early leaders like Copenhagen and Stockholm in pledging to become carbon neutral cities. Boston and London, for example, have both recently announced the goal of becoming zero carbon cities by 2050. To achieve such ambitious goals, cities will need to have implemented major changes to their energy systems by 2030. And given the speed of urban planning processes and infrastructure programs, cities and their partners need to instigate many of these projects within the next 3-5 years.

This transformation will touch every aspect of city services and infrastructure, including energy generation and distribution, heating and cooling systems, building energy efficiency, transportation, water and waste management, and the efficiency of city services such as street lighting. At the same time, city operations are being transformed by digital technologies such as the Internet of Things (IoT), smart buildings, artificial intelligence, robotics, and automated vehicles.

A new Navigant white paper, Navigating the Urban Energy Transformation, looks at the critical elements of the emerging city energy landscape and the intersection with the radical changes that Navigant characterizes as the Energy Cloud. As the City of Madison is showing, the transformation of the energy sector provides the bedrock for the creation of the low carbon cities of the future. This convergence of urban innovation and the energy transformation makes smart cities one of the key combinatorial platforms for the Energy Cloud.

The opportunities this creates for utilities and other energy sector plays is particularly evident in the building and transport sectors. A zero carbon city will need to address the role of fossil fuels in space heating and in transportation. Improvements in energy efficiency and the shift to renewable resources are essential steps but, more profoundly, the much closer connection between buildings and transportation and the energy grid will lay the foundation for a new Urban Energy Cloud:

Building in the Energy Cloud: The extension of building systems from standalone applications focused on the operation of a single building to hubs within a wider network of energy and environmental monitoring systems will be one of the most dramatic changes in the technical infrastructure of the city. Navigant Research estimates that only 0.5% of the commercial building stock globally is actively participating in the energy system today, but by 2026, more than 9% will be involved. This development will create new roles and opportunities for all players in the sector, including utilities.

The age of low carbon mobility: The decarbonization of urban transportation fleets is also offering many opportunities for utilities. EVs will be the single largest addition of energy demand to the power grid in many nations of the developed world. By 2020, more than 4,000 GWh of electricity will be consumed by plug-in EVs annually in the US alone. New services are already combining EVs with stationary storage and other renewable energy offerings to optimize regional supply and demand. The smart charging of swarms of managed EVs will enable greater concentrations of rooftop solar, as charging will be staggered outside of peak times and will be matched to distributed generation.

The city of 2030 will need to manage a much more complex set of interdependencies between diverse aspects of city operations, infrastructure, and platforms. This requires new networks for collaboration between cities, utilities, and other energy sector players, as well as transportation providers, building owners, telecommunication companies, and technology suppliers. Navigant Research estimates that this will create a market worth more than $1.5 trillion over the next decade for smart services across urban energy, buildings, mobility, and other city operations.

TV and movie businesses may not seem like the best analogy for the automotive industry and the future of transportation, but if you consider the evolving relationships, there are some fascinating parallels. The relationship between two of the world’s largest media companies, incumbent Disney and insurgent Netflix, is becoming increasingly tenuous as both look to leverage disruptive technologies. In the mobility space, we are seeing a surprisingly similar dynamic between major automakers and ride-hailing companies like Uber and Lyft, with Alphabet and Apple on the periphery of the battle.

The Evolution of Entertainment as a Service

It’s now been a full decade since Netflix began its pivot from mailing plastic discs to customers to streaming video over the internet. Until a few years ago, Netflix was completely dependent on the willingness of content creators like Disney, Fox, Warner, and others to provide the materials that it mailed or streamed to subscribers. The studios did this in exchange for licensing fees because they saw it as advantageous to get in front of viewer’s eyeballs on the new distribution channel.

At first, the number of people watching Disney content on Netflix was relatively low and the studio saw it as an interesting experiment. The revenue numbers were small and had to be split with the distributor. Now, as it has become increasingly apparent that consumers are shifting away from paying to go to theaters and paying for cable TV services in favor of direct streaming to TVs and mobile devices, the idea of splitting that revenue pie has lost its appeal.

How Will the Auto Industry Respond to the as a Service Momentum?

Meanwhile, in the transportation space, ride-hailing providers have grown at an even faster pace than Netflix while continuing to lose billions of dollars per year. Automakers have taken note of the growing popularity of mobility as a service and see the threat to their core business of selling cars, just as streaming has eaten into Disney’s core distribution channels.

Most of the big automakers are actively developing ridesharing services that will increasingly leverage disruptive automated vehicle technologies. Just as Disney no longer sees the need to share the revenue from its creations with Netflix, GM, Daimler, Ford, Volkswagen, and others may eventually want to stop giving Uber, Lyft, and Didi a cut and instead compete with them directly.

Navigant Research’s Mobility as a Service report projects annual ride-hailing revenue of nearly $1.2 trillion globally. An ever increasing proportion of that is likely to go to the companies that build the vehicles that move people and goods as well as those that operate their own services.

Amazon’s latest service innovation has raised questions about how far the boundaries of technology can be pushed to make consumers’ lives more convenient. The Amazon Key delivery service, along with the Amazon Cloud Cam and a compatible smart lock, allow users to grant access for in-home deliveries. The service solves issues around package theft and customer availability to receive a package. It works by sending the user a 4-hour window on the day of delivery and confirming the assigned courier is at the correct address at the intended time by scanning the package barcode. When the package is scanned, the user receives a notification of the imminent delivery, the Cloud Cam is activated, the door unlocks, and the user can watch the delivery in real-time or check back later to ensure the delivery went well. The service was made available in 37 cities for tens of millions of items in November 2017. This sounds simple and straightforward, but media and industry specialists are scrutinizing the limits this service approaches by letting strangers into people’s homes. And to be fair, there are already issues with it, including a flaw that allows couriers to disable the security camera and door lock (which Amazon has promised it will fix).

Can Security Solutions Tamper Concerns?

This new service is one among many offerings in the residential sector that emphasizes growing concerns over consumer privacy and security. From the common belief that our beloved social media sites are spying on users to publicized hacks of big name brands resulting in leaked personal data, consumers are increasingly wary as technology becomes a more intimate part of their lives. Stakeholders across the value chain recognize the need to implement more robust security solutions, and new regulations that aim to protect consumer data are emerging, such as the General Data Protection Regulation (GDPR). But for many, cybersecurity is only starting to become a priority, and companies are still figuring out how to deal with growing threats.

Threats of Scale

Data privacy and security become especially complex in the consumer electronics world because the home is a sanctuary and should be private and secure. At the same time, the hacking of a Wi-Fi router has much lower stakes than the hacking of a power plant and can be considered less of a priority for investment in security. Manufacturers promise data privacy and secure devices, but customer sentiment does not always resonate with these assurances. There is also the question of responsibility and whether the manufacturer, chip provider, wireless protocol alliance, or the consumer should be held responsible for security and data privacy. Consumers want to partake in social media, adopt smart home devices, and lead more convenient lives, but don’t want to feel like they are being watched, listened to, or followed, and they don’t always understand the risks associated with using technologies (such as the collection and sales of personal data).

Convenience vs. Safety

Privacy and security are increasingly affecting consumers at home. Residential customers are skeptical of technologies that have the potential to compromise privacy and security, which is affecting market growth. In order to progress the Internet of Things in the home, it is important for stakeholders in the residential space to be transparent with users about the measures they take to ensure the security of devices, software, services, and data privacy.